Recent government policy measures towards reducing its current account deficit was reason for the International Monetary Fund (IMF) agreeing to approve the US$426.8 million tranche, the body's resident representative Dr. Koshy Mathai told journalists in Colombo.
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| Dr Koshy Mathai |
He noted that the fund final review would take place in the next three months (for the balance $400 million).
It was noted that the adjustment measures, of a floating rupee, implemented by the government since February provided the required sustainability and opined that these were likely to change in the future either to further tighten or relax depending on the economic progress.
Commenting on the recent hike in taxes on motor vehicles and alcohol products, he said that they were unaware of this and did not expect it. Dr. Mathai noted that this indicated the government's attempts at addressing the issue of its current account deficit although they were not fans of such moves of any state. On the other hand, the government needs to follow a policy of adopting a tax structure, he said.
| Loan terms so far |
The IMF said the interest rates for the US$2.6 billion loan are tied to LIBOR and currently at 1.1%. This 1.1% applies for upto US$2 billion.
Total disbursements to date are US$2.1 billion with the latest disbursement being US$426.8 million. Of this approximately US$300 was given at 1.1% and the excess of approximately US$130 million is given at the rate of 3.1% (with the 2% surcharge).
In future, the disbursement would be made at the higher rate (3.1%).
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But he was optimistic of the policies passed and that they were "highly consistent" as well.
The IMF also said that while the country's economic growth projection was expected to reduce from the targeted 7.5%, inflation would increase although it would be retained at a single digit. Meanwhile, it was pointed out that Sri Lanka needs to look to its two dominant economies in the region India and China compared to its priority markets, the US and the EU that buys more than 50% of the country's exports.
In this respect, Dr. Mathai said the country has to "reduce and diversify" what it exports. The IMF will in the next 6-12 months continue to focus on the country's balance of payment issues and its reserves. IMF has also approved waivers on the net international reserves and reserve money, which Dr. Mathai explained was found to have missed its targets for last year.
There was concern at the time of the pace of the loss in reserves that dropped from a targeted US$8 billion to US$6 billion last year. Dr. Mathai remained "optimistic of Sri Lanka's prospects in the medium term," and noted the country was not "overheating."
However, he believed that with credit on the rise there was also an increased pressure from the labour market as well. Responding to a question on the possible slowing down of Foreign Direct Investments (FDI) to the country, he said "expectations are too high" and this would take time. "We expect FDIs to pick up in this kind of economy," he said. |
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